What does Rollover mean in Binary Options

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What does Rollover mean in Binary Options?

The core of Binary Options involves taking either of two opposite positions on an asset for a specific period. The position you take, the period, and the amount you risk are specifics; which pretty much gives Binary Options a hardline image. In finance, flexibility is desirable: and in Binary Options, tools or features that increase flexibility from these ‘hard nut’ specifics are welcome.

Understanding what Rollover means in Binary Options

In binary options, rollover describes both a feature or tool and a process or strategy. Rollover is one such tool that extends the flexibility of trading Binary Options. In order to understand what rollover is, what it does, and how it can be applied in Binary Options, let’s consider a common scenario in Binary Options which calls for the use of the rollover feature.

A retail trader, Mr. Hoffman, takes a position on asset A, for a one-hour period. Say, 40 minutes into the trade, Mr. Hoffman’s position is a win and he is convinced the trend will continue after his position is meant to expire, what can Mr. Hoffman do if he wants to take more advantage of the trend by extending the period?

Mr. Hoffman can use the rollover feature or apply the rollover strategy. Using the rollover tool, Mr. Hoffman would be able to extend the period of the trade past when it is meant to expire. That is the basic function of the tool. The rollover strategy involves the thoughts and specifics that go into how a trader uses the rollover tool, like conditions that must be met before using the tool and the configuration of the tool (say how much time extension is appropriate and how much is overkill).

How does Rollover work in Binary Options?

When you use the rollover feature, the chain of events that occur is as follows:

  • The returns from the asset in your existing trade, prior to your session’s expiry, are carried forward
  • These returns are then reinvested in the same asset for a period that will continue after the expiry of your existing trade

Requirements that must be met before using rollover in Binary Options

  1. Time. Rollover can only be used when the position you want to use it on, is in session (that is before the session expires or when the session is yet to expire).
  2. Premium. Cost charged by a broker to use the feature. It is charged every time you use the feature, and may be a fixed rate or a percentage of the initial investment.
  3. Brokers may add other requirements. These extra requirements include but are not limited to, how far into the session (period from the start of the session) you can use the feature, how far from the session expiry you can use the feature (for example, the feature cannot be used within the last five minutes of a session), permissible extension periods. These requirements vary across brokers. To find out the exact requirements of your broker, consult the broker’s policy on rollovers.

When can you use Rollover in Binary Options?

  1. When you want to make more profit gains from an existing option and do not want to make a similar investment separately
  2. When you require more time for a trade to unfold, when it appears that an option will likely expire out of the money (that is, you would run a loss), especially when you are positive that the trend will reserve in the long run

Caution to exercise when using Rollover in Binary Options

Like many tools that increase flexibility in trading Binary Options, there is a risk to using the rollover feature. If the way things play out turns out to be the opposite of your outlook/prediction, you would be losing more money—your initial investment, the returns made in your original session (if you were profitable in your original session), and the surcharge (premium) paid to use the tool.

What is “Rollover” in Binary Options?

You may notice that some binary options brokers allow you to use a feature called “rollover” in your trading. A related feature is called “double up.” These features, when used intelligently, may help you to increase your winnings if a trade is going in your favor. Used without careful thought, they can help you lose money faster. Let’s take a look at how they work and when it is appropriate to use them.

How Rollover In Binary Options Work

Let’s say you’re in a binary options trade, and it’s going to expire in an hour. You notice that the asset you’re invested in is now starting to trend, and you see no reason that the trend is likely to stop. If you were trading Forex, you could add to your position. The equivalent of adding to your position in binary options trading is to select the rollover or double up option. With rollover, you extend your expiry time. You’ll be asked to add a certain percentage to your investment. So you might invest an additional 30% of what you already are wagering and that will extend the expiry time by a certain amount. If the financial instrument expires in the money at the end of that period, you win more money. If it expires out of the money at the end of that period, you lose more money.

Doubling Up

Doubling up is a similar concept. It’s exactly what it sounds like. You double your investment. So you can either win money twice as fast or lose money twice as fast—it all depends on whether the trade goes in your favor or against you. How do you figure out whether you should double up, use the rollover feature, or stick with the investment you’ve already made?

This is just one of many aspects of trading which you need to test before you decide to do it live. It’s a question of money management—how you decide what to invest on each trade. For some traders, it’s simplest to avoid rollover or doubling up; this makes the amount of money you invest consistent every trade. Other traders excel by using these features however—it makes sense to take advantage of a good situation when things are moving in your favor. You need to be confident that they truly are moving your favor however—learning how to really recognize these situations is a matter of practice. Try practicing on historical data and then demo testing before you decide on whether to make use of these features or not. Different methods call for different techniques, and different personalities are suited by different money management styles. The only way to find out what’s best for you is to test.

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What does rollover mean in binary options

Written by on March 12, 2020

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